FireEye: Managing Your Risk Appetite

Jul. 21, 2019 11:21 PM ETAlphabet Inc. (GOOG)9 Comments
Kayode Omotosho profile picture
Kayode Omotosho
5.99K Followers

Summary

  • FireEye has been trading sideways for some quarters now.
  • Competitors keep swiping market share.
  • It's tough to break out of the tight trading range given the lack of near-term catalyst to drive valuation.
  • I will remain on the sideline with a HOLD rating.
  • Investors should be wary of a break out in the event of an earnings beat as FireEye is trading close to its 52-week low.

ChartData by YCharts

FireEye (FEYE) has been trading sideways for some quarters now and investors seem to be losing patience as the sideways pattern is beginning to trend downwards. The lack of near-term value-generating catalyst to propel the stock has led to a general apathy towards this name. The stock is yet to actualize the growth it's projected to benefit from the cloud security market after the release of its automation solution, Helix. How much longer do investors have to wait to profit from this name?

The institutional investors that value cybersecurity company are great at their game. Most of them are ex-founders, inventors, CEOs, and board members of these cybersecurity firms. They’ve played this game longer than the average retail investors can imagine. Armed with this reality, I’ve decided to tone down the harshness of my analysis over the years. The days of hastily criticizing a company’s valuation are behind.

What I’m implying is that your entry price is more of a chance than an effort in diligent research. Instead, what matters is the ability of the company to attract two things:

  1. More demand for its product

  2. More funding from investors to drive growth

For a growth company with little macro headwinds, every other thing tends to be immaterial. Now, don’t get me wrong. I’m not trying to work you over a hasty analysis with an unfound valuation. Rather, I’m trying to distill the true valuation drivers based on my years of experience tracking cyber-security stocks. And from my observation, those are the things that matter.

Let me explain.

More demand: for startups, demand can be deciphered by the size of the target market, revenue & revenue growth, and the ability to attract top talents. Once the revenue growth story dries up, everyone jumps off the boat. How is FireEye trending?

ChartData by YCharts

ChartData by YCharts

ChartData by YCharts

ChartData by YCharts

This article was written by

Kayode Omotosho profile picture
5.99K Followers
Kayode's strategy aligns only with businesses that have competitive moats, solid financials, good management, and minimal exposure to macro headwinds.-------------------------------------Coverage tilted towards tech stocks (IoT, Cybersecurity, Cloud, DevOps, Data management)

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Recommended For You

Comments (9)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.